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The Fading American Dream: Trends in Absolute Income Mobility Since 1940

Author

Listed:
  • Raj Chetty
  • David Grusky
  • Maximilian Hell
  • Nathaniel Hendren
  • Robert Manduca
  • Jimmy Narang

Abstract

We estimate rates of “absolute income mobility” – the fraction of children who earn more than their parents – by combining historical data from Census and CPS cross-sections with panel data for recent birth cohorts from de-identified tax records. Our approach overcomes the key data limitation that has hampered research on trends in intergenerational mobility: the lack of large panel datasets linking parents and children. We find that rates of absolute mobility have fallen from approximately 90%for children born in 1940 to 50% for children born in the 1980s. The result that absolute mobility has fallen sharply over the past half century is robust to the choice of price deflator, the definition of income, and accounting for taxes and transfers. In counterfactual simulations, we find that increasing GDP growth rates alone cannot restore absolute mobility to the rates experienced by children born in the 1940s. In contrast, changing the distribution of growth across income groups to the more equal distribution experienced by the 1940 birth cohort would reverse more than 70% of the decline in mobility. These results imply that reviving the “American Dream” of high rates of absolute mobility would require economic growth that is spread more broadly across the income distribution.

Suggested Citation

  • Raj Chetty & David Grusky & Maximilian Hell & Nathaniel Hendren & Robert Manduca & Jimmy Narang, 2016. "The Fading American Dream: Trends in Absolute Income Mobility Since 1940," NBER Working Papers 22910, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:22910
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    References listed on IDEAS

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Sam Watson’s journal round-up for 1st May 2017
      by Sam Watson in The Academic Health Economists' Blog on 2017-05-01 16:00:15
    2. How to keep the American Dream intact?
      by paragwaknis in Musings of the Sorts on 2017-01-19 03:01:08
    3. On the Distribution of Wealth
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2018-04-16 11:56:16

    Citations

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    Cited by:

    1. David Gallusser & Matthias Krapf, 2022. "Joint Income-Wealth Inequality: Evidence from Lucerne Tax Data," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 163(1), pages 251-295, August.
    2. Lucas Chancel, 2019. "Ten facts about income inequality in advanced economies," World Inequality Lab Working Papers hal-02876982, HAL.
    3. Bruce Weber & J. Matthew Fannin & Kathleen Miller & Stephan Goetz, 2018. "Intergenerational mobility of low‐income youth in metropolitan and non‐metropolitan America: A spatial analysis," Regional Science Policy & Practice, Wiley Blackwell, vol. 10(2), pages 87-101, June.
    4. Nathaniel Hilger, 2017. "All Together Now: Leveraging Firms to Increase Worker Productivity Growth," NBER Working Papers 23905, National Bureau of Economic Research, Inc.
    5. Philippe Aghion & Antonin Bergeaud & Timo Boppart & Peter J. Klenow & Huiyu Li, 2019. "Missing Growth from Creative Destruction," American Economic Review, American Economic Association, vol. 109(8), pages 2795-2822, August.
    6. Kevin Rinz, 2018. "Labor Market Concentration, Earnings Inequality, and Earnings Mobility," CARRA Working Papers 2018-10, Center for Economic Studies, U.S. Census Bureau.
    7. Julie MacLeavy & David Manley, 2018. "(Re)discovering the lost middle: intergenerational inheritances and economic inequality in urban and regional research," Regional Studies, Taylor & Francis Journals, vol. 52(10), pages 1435-1446, October.
    8. Brian Burgoon & Sam van Noort & Matthijs Rooduijn & Geoffrey Underhill, 2018. "Radical Right Populism and the Role of Positional Deprivation and Inequality," LIS Working papers 733, LIS Cross-National Data Center in Luxembourg.
    9. Gale, William G., 2019. "Fiscal policy with high debt and low interest rates," MPRA Paper 99207, University Library of Munich, Germany.
    10. Jonathan Davis & Bhashkar Mazumder, 2017. "The Decline in Intergenerational Mobility After 1980," Working Paper Series WP-2017-5, Federal Reserve Bank of Chicago, revised 14 Jan 2022.
    11. van der Weide, Roy & Narayan, Ambar & Negre, Mario, 2019. "Economic mobility across generations: Old versus new EU member states," Briefing Papers 14/2019, German Institute of Development and Sustainability (IDOS).
    12. Brigham R. Frandsen & Lars J. Lefgren, 2021. "Partial identification of the distribution of treatment effects with an application to the Knowledge is Power Program (KIPP)," Quantitative Economics, Econometric Society, vol. 12(1), pages 143-171, January.
    13. David Gallusser & Matthias Krapf, 2019. "Joint Income-Wealth Inequality: An Application Using Administrative Tax Data," CESifo Working Paper Series 7876, CESifo.

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    JEL classification:

    • H0 - Public Economics - - General
    • J0 - Labor and Demographic Economics - - General

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